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Strong Growth of 2018 Results Success of the Fnac Darty Integration

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Strong Growth of 2018 Results Success of the Fnac Darty Integration Ivry, February 20th, 2019 Strong growth of 2018 results Success of the Fnac Darty integration . Strong growth in results: current operating income up +10% at €296 million and current operating margin at 4.0%, an increase of +0.4 pt . 2018 revenues were up +0.4%, despite a consumption environment marked by strong negative effects . Success of the Fnac Darty integration: €131 million in synergies deployed at year-end 2018, one year ahead of the Group’s initial commitment . Net income from continuing operations rose +20%, to €150 million . Solid financial structure: return to a positive net cash position only two years after the Darty acquisition . Rapid roll-out of the Confiance+ plan and acceleration in digital, which represents 19% of sales Enrique Martinez, Chief Executive Officer of Fnac Darty, declared: “In a context marked by exceptional events that had a profound impact on the consumption environment, our Group delivers growth in sales and profits, thanks to the commitment of its teams, and demonstrates both the solidity of its strategic positioning and the quality of its execution. The Fnac Darty integration is a success and the Group has delivered the promised synergies one year ahead of its initial plan. The power of the Fnac Darty model, based on the complementarity of its products and services offering, and our commitment to offer the most educated choice, will continue to benefit our customers and enhance their preference for our brands. 2019 will be a year of acceleration in our search for excellence in digital, in customer experience, and in our commitments to the sustainability of our products. We confirm our medium-term objectives of higher growth than our markets and a current operating margin of 4.5% to 5%. " KEY FIGURES (€ millions) 2017 2018 Change Revenues 7,448 7,475 +0.4% Change on a like-for-like basis1 +0.3% Current operating income (COI) 270 296 +10% Operating margin 3.6% 4.0% +0.4pt Free cash flow from operations 199 153 Reported net income from continuing operations 125 150 +20% Consolidated net income 38 150 +€112 m Net cash reported at December 312 (86) 7 +€93 m 1 Like-for-like data: excluding effect of changes in foreign exchange rates, changes in scope, and the openings and closures of stores 2 A plus sign indicates a net cash position; a minus sign indicates a net debt position 1 2018 HIGHLIGHTS Very solid results in 2018 in a complex market environment Fnac Darty revenues totaled €7,475 million, an increase of +0.3%1 on a like-for-like basis. This strong performance occurred in a market environment marked by multiple exceptional events that impacted commercial activity, particularly in France: weather conditions in the first quarter of 2018, social movements in the second quarter, and “yellow vests” protests at the end of the year. Gross margin rate reached 30.3%, up +20 basis points, excluding the dilutive effect of the franchise business (-30 basis points in 2018). Current operating income was up +10%, reaching €296 million under the combined effect of the synergies and the quality of the operational execution. The Group continued its strong generation of operating free cash-flow at €173 million2, incorporating -€38 million in non-recurring cash costs related to the integration. This solid performance reflects the agility of the Group and its ability to simultaneously drive the successful integration of the two banners, the roll-out of its new strategic plan, and a perfectly controlled commercial execution in a lackluster consumption environment. Success of the Fnac Darty integration An ambitious project completed one year ahead of schedule The year 2018 marked the success of the Fnac Darty integration, which had started in 2016 when the two banners merged. At that time, the Group had announced an objective of €130 million in synergies to be deployed before the end of 2019, an ambitious goal in regards to the pro forma current operating income of €194 million recorded by Fnac Darty in 2016, excluding synergies. The multiple actions conducted by Fnac Darty since 2016 allowed the roll-out of the announced plan one year ahead of schedule, and demonstrate the agility of the Group, which even exceeded its target by delivering €131 million in synergies at the end of 2018. A successful commercial integration Fnac Darty has implemented a number of commercial initiatives between its two banners. The complementary features of the Group’s e-commerce platforms were leveraged, with the opening of a Darty section on the Marketplace of fnac.com, and a ticketing section on darty.com. The Group’s customers can pick up their fnac.com purchases in 320 stores of the Darty network, and their Darty.com purchases in 30 stores of the Fnac network, thus expanding the strength of the Group’s geographical coverage. Darty’s logistical expertise in delivering bulky products has also been leveraged by Fnac, as Darty now delivers televisions for the entire Group. 1 Like-for-like data: excluding effect of changes in foreign exchange rates, changes in scope, and the openings and closures of stores 2 Excluding the €20 million fine paid to the French Competition Authority 2 Fnac Darty also continued to expand its offering of cross-banner products and services. At the end of 2018 in France, 31 Fnac stores hosted a Darty shop-in-shop, while two Darty stores hosted Fnac shop-in-shops. A first point of sales combining both a Fnac and a Darty store was also opened in 2017. As regards services, the many exchanges of expertise between banners drove the development of the services offering, particularly around insurance and IT security. Around forty corners dedicated to Photo Works were also opened within the Darty network, capitalizing on Fnac’s experience in this area. Internationally, the small household appliances offering is rolled out under the Fnac Home banner with more than 30 stores equipped in the Iberian Peninsula. Finally, the Group’s loyalty programs continued to grow, with a total of nearly 8 million members at the end of 2018. Fnac+ and Darty+ together have 1.5 million subscribers and offer a joint approach to loyalty, as customers holding only one of these cards can benefit from premium and free delivery within the two banners. An operational integration creating value The Group also took advantage of its new size in order to strengthen its relationship with suppliers, in order to benefit from better purchasing terms and improves its gross margin rate. It stood at 30.3% of revenues at year-end 2018, up from 29.9% at the end of 2016, despite the dilutive effect of the franchise network expansion (-0.3pt in 2017 and 2018). Leading its markets, Fnac Darty is now established as a key platform, which allows it to benefit from a number of exclusive offers and to support its partners in the promotion of innovation and product launches. The Group has also taken advantage of the merger of the two banners to optimize its indirect purchasing, particularly by pooling or renegotiating its service contracts. This solid management of its costs base has generated substantial savings. The specialization of inventories and logistics centers is now in place in France, which allowed the transfer of the Wissous 2 warehouse. The implementation of a new logistics structure generates significant savings through the redefinition of the transport plan across the whole of the French territory. In France, the optimization of the after-sales service network in 2018 reduced the number of repair shops by half, and created a central parts warehouse that supplies all the after-sales platforms. These platforms have been pooled in order to handle product flows from both banners, with the Bezons platform, for example, handling the TV and small household appliance after-sales services for both Fnac and Darty. In Belgium, the new logistics structure is finalized and Fnac.be can now deliver its orders using the Vanden Borre inventory. As regards information systems, the Group continued to optimize the systems of the two banners in 2018, with the launch of a shared inventory management system that allows each banner to offer the inventory of the entire Group. Finally, the new organizational structure for headquarters is in place, and the relocation of teams was finalized in 2018. Darty’s London headquarters was closed in 2016, and the Belgian Fnac and Vanden Borre teams were combined on the same site in 2017. This new structure has made a significant contribution to the development of a common culture among the teams, based on the initial vision: “One Group, two banners”. The Group’s employees are now mobilized around the roll-out of the strategic plan: Confiance+. 3 Rapid roll-out of the Confiance+ plan In 2018, the Confiance+ strategic plan was rolled out rapidly, in parallel to the successful Fnac Darty integration. A reinforced omnichannel platform First-class digital and logistics capabilities The Group continued to roll out its initiatives intended to expand its omnichannel footprint, particularly by developing its digital and logistical capabilities. E-commerce activities now represent near 19% of Group revenues, up from around 17% last year. The performance of the Group’s e-commerce platforms was solid in the fourth quarter, with double-digit growth in all geographical areas. In 2018, the expansion of online sales was marked by strong international growth and the continued rapid growth of “marketplaces”. The Group strengthened its delivery offer by establishing D+1 delivery for its entire range of bulky products, including services (installation, and removal of product), covering 80% of the French territory. Last year, the Group also rolled out test stores for the reservation of gaming products and books from in-store inventory, giving the Group’s customers an option to pick up their purchases in one hour.
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